Income Investors: Don’t Miss Out on This Hidden Gem

What could be more certain than death or taxes? For income investors, Chartwell Retirement Residences (TSX:CSH.UN) presents an opportunity.

| More on:

They say the only two certainties in life are death and taxes. And while there are no stocks to invest in the former, there are plenty of stocks to invest in the latter — especially if you are an income investor. I am, of course, referring to safe and profitable healthcare REITs, particularly those in the senior-living sector.

Demographic trends paint a bullish picture

According to research from National Bank, there are several underlying factors that build a bullish case for senior-housing REITs. First and foremost, Canada is in the midst of a demographic shift as residents aged 65 years and older have eclipsed the number of people under the age of 14 for the first time in our country’s history. Moreover, as per the World Bank, the portion of Canada’s population aged 75 years and older in 2016 was 7.1% and is expected to grow to 13% by 2035 — far outpacing Canada’s overall growth rate of 14%.

Furthermore, according to the Canada Mortgage and Housing Corp. (CMHC), 9.1% of those aged 75 years or older occupied retirement facilities in 2016. As the senior population effectively doubles within the next 20 years, we can expect demand for senior-living facilities to increase.

Finally, although the level of affluence among seniors has increased 70% from 1999 to 2016 (median net worth of $270.7 thousand versus $460.7 thousand), elevated housing prices in major Canadian metropolitan areas mean that seniors are more inclined to lock in the price appreciation of their homes and maximize their retirement period through residency in a care home.

Enter Chartwell Retirement Residences

As far as senior-housing REITs go, the Canadian selection is quite slim; there are only a handful of public names. Moreover, the entire sector is quite fragmented with the 15 biggest names controlling just 43% of the market.

However, one name that stands out is Chartwell Retirement Residences (TSX:CSH.UN), which happens to be the biggest senior-housing REIT in Canada with 25,000 suites and a $3 billion market cap to its name. As the largest senior-home operator in Canada, Chartwell’s name represents a stable stream of cash flow as well as access to a talented management team which has led the company to outperform the TSX REIT average, more or less, in terms of quarterly same-property net operating income since 2010.

Furthermore, income investors will be happy to note that the REIT’s feverish acquisition activity is expected to slow down after the $800 million in aggregate expenditures it spent to strengthen its foothold in eastern Canada. This means that with a payout ratio of just 67% of adjusted funds from operations, investors can expect dividend increases in the coming quarters.

The bottom line

With the Bank of Canada expected to keep yields low in the near term, REITs and other income stocks have begun to look more attractive for defensive investors. If you’re looking for a stable source of income, then the payouts from senior-housing REITs such as Chartwell are about as certain as death and taxes.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Alexander John Tun has no position in any stocks mentioned.

More on Dividend Stocks

Golden crown on a red velvet background
Dividend Stocks

The Smartest Dividend Aristocrats to Buy With $500 Right Now

These three Dividend Aristocrats offer value but also huge passive income to lock in while prices still trade so low!

Read more »

protect, safe, trust
Dividend Stocks

3 Anchor Stocks for Steady Stability if There Is a Recession

If you consider dividends an important part of your total return, three industry leaders should be your anchor stocks.

Read more »

growing plant shoots on stacked coins
Dividend Stocks

TFSA Investors: 2 Dividend-Paying Mortgage Stocks to Boost Your Income in 2023

TFSA investors can allocate their new $6,500 contribution limits to two high-yield mortgage stocks to boost their tax-free incomes in…

Read more »

Arrowings ascending on a chalkboard
Dividend Stocks

3 TSX Stocks With Dividends That Outpace Inflation

Investors that worry about losing buying power due to inflation could put money into these three stocks! They’re known for…

Read more »

edit Businessman using calculator next to laptop
Dividend Stocks

Dividend Seekers: Which of These 3 TSX Energy Stocks Is a Better Buy?

Which is a better bet among TSX energy bigwigs?

Read more »

data analytics, chart and graph icons with female hands typing on laptop in background
Dividend Stocks

3 Top Value Stocks to Buy in December 2022

Stocks such as Bank of Montreal and NFI Group are trading at attractive and cheap valuations in 2022.

Read more »

Dividend Stocks

1 Oversold Dividend Stock I’d Buy in December 2022

Here’s one of the best Canadian dividend stocks to buy in December that I find undervalued.

Read more »

Make a choice, path to success, sign
Dividend Stocks

Algonquin Power Stock: Time to Buy or Buyer Beware?

Algonquin Power stock has a massive 9.5% dividend yield. It looks appealing, but is it time to buy or beware?

Read more »